Commentary: The North American Free Trade Agreement (NAFTA) is a comprehensive trade agreement that improves virtually all aspects of doing business between Canada, Mexico, and the United States. Upon NAFTA’s entry into force on January 1, 1994, Mexico immediately eliminated tariffs on nearly 50% of all industrial goods imported from the United States and removed many non-tariff barriers. Virtually all tariffs on industrial goods were eliminated by 2003 and tariffs on U.S. exports of certain agricultural products to Mexico will be phased out on January 1, 2008. With the exception of tariff rate quotas on certain supply-managed agricultural products, all Canada-U.S. trade has been duty free since 1998. Canada and Mexico are the first and second largest export markets for U.S. goods.

Before and After NAFTA:

Overall Trade in Goods among the United States, Canada and Mexico has grown from $297 billion in 1993 to $883 billion in 2006, an increase of 198%.

U.S. goods exports to Canada and Mexico grew from $142 billion in 1993 to $364.6 billion in 2006, an increase of 157%.

U.S. goods imports from Canada and Mexico grew from $151 billion in 1993 to $500.7 billion in 2006, an increase of 231%.

U.S. services exports to Canada and Mexico have increased by 125 percent since 1993, reaching $61.7 billion in 2006 (preliminary estimate) and exceeding services imports from these two countries by $23.4 billion.

U.S. foreign direct investment (FDI) in Canada and Mexico has increased by 289 percent since 1993, reaching $331.2 billion in 2006 (latest data available) and exceeding Canadian and Mexican FDI in the United States (stock) by $166.1 billion.

Benefits of NAFTA:

Investment: With limited exceptions, NAFTA requires U.S. investors to be treated in Mexico and Canada as well as those countries treat their own investors or investors of any other country in the establishment, acquisition, and operation of investments. NAFTA also guarantees investors the right to receive fair market value for property in the event of an expropriation. The protections of NAFTA’s Investment Chapter are backed by a transparent, binding international arbitration mechanism, under which investors may, at their own initiative, bring claims against a NAFTA government for an alleged breach of the chapter. The NAFTA Parties have agreed to make public their submissions in investor-state disputes, and to make arbitral hearings open to the public. Tribunals are also authorized to accept amicus submissions from non-disputing parties.

Services: NAFTA establishes a solid framework for trade in services through the elimination of barriers in nearly all service sectors and enhancement of regulatory transparency. U.S. firms have been well positioned to take advantage of NAFTA’s new market access opportunities—services exports have more than doubled under NAFTA and greatly exceed services imports. With service industries often highly regulated, regulatory transparency is essential. Under NAFTA, regulatory authorities are to use open and transparent administrative procedures, consult with interested parties, and publish all regulations.

Government Procurement: The government procurement provisions of NAFTA apply to the procurement of goods, services, and construction services. U.S. suppliers are granted nondiscriminatory rights to bid on contracts to supply most Canadian and Mexican central government entities. This increases opportunities for U.S. exports to Canada and Mexico in such sectors as construction, environmental and computer software and design services, oil and gas field equipment and services, heavy electrical equipment, communications and computer systems, electronic, pharmaceutical products, and medical equipment.

IPR: NAFTA recognized early the importance of intellectual property protection and enforcement within the context of international trade agreements, having been signed nearly two years before the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). NAFTA provides for the protection and enforcement of a broad range of intellectual property rights, including patents, trademarks, copyrights and test data.